CEO's Message Aug 2017
Category CEO's Message
Many might find it surprising that I can see some light at the end of South Africa’s rather dark economic tunnel!
It is tempting for all of us to be dragged down as we are swamped almost daily with negative news – poor business confidence and consumer confidence, ratings downgrades with even more expected to come early next year, little if any economic growth, soaring unemployment. The list goes on.
As we saw during the 2008 global recession, the residential property sector is usually one of the most sensitive to downturns. Poor consumer confidence means there is little demand and, as one economist I spoke to recently put it, now is not the time to shell out for big ticket items. Just look at car sales if you want to know that consumers are tightening their belts. There’s even negative pressure on essentials such as food and clothing as household disposable incomes shrink.
Yet, unlike during other downturns, there are some interesting upticks when it comes to property.
The most obvious was the Reserve Bank’s decision to cut the repo rate by 25 basis points to 6.75% in July.
As we all know, it takes some time for an interest rate cut to impact positively on the economy. What was more interesting – and more important for the property market – was the underlying reason for the cut.
June consumer inflation declined to 5.1%, while core inflation, excluding volatile food and energy prices, was steady at 4.8%. The main reason for this has been the end of the drought in most parts of the country.
But what got my attention was that this was the beginning of an expected prolonged fall in inflation. Overall, economists expect inflation to remain within the 3 to 6% target range not just for this year but also in 2018 and 2019. Most admit that further rate cuts are highly possible.
This means some relief for those repaying home loans as well as some degree of certainty for those in the market to buy, especially first timers.
With further rate cuts now a strong possibility, home loans could also now become more affordable for those who were on the borderline, boosting the market as a whole.
I also believe that there’s another major factor that could mitigate the negative effects of political and economic uncertainty when it comes to residential property – and that is that there’s a shortage of good housing, especially in our cities.
As Tyson Properties’ agents will tell you, there is not enough housing stock to meet demand, particularly in urban centres like Johannesburg, Cape Town and Durban. I’ve found this to be particularly true in low to mid-income areas. The “sweet spot” is undoubtedly in houses where repayments will be between R7 000 and R12 000 per month.
In my experience, houses in this range do not stay on the market for long.
The best advice I can offer in this difficult and unpredictable market is to look to those positives.
Even though times are tough, I can vouch for the fact that there are buyers out there and that there is still demand for property. But, you must remember that these are buyers who are far more price sensitive than in previous years. They are looking for value for their hard earned money, so make sure that you house is in the best condition possible and work with us to ensure that your property is priced just right.
Author: Tyson Properties
